Question

In: Accounting

On August 1, 2020 Gillian’s Gems exchanged productive Assets with Tara’s Treasures with the following data...

On August 1, 2020 Gillian’s Gems exchanged productive Assets with Tara’s Treasures with the following data related to the Assets:

Gillian’s                       Tara’s

Equipment cost $96,000 $110,000 ==> ($96000 Gillian's , $110000 Tara's)

Accumulated Depreciation $40,000 $47,000 ==> ($40000 Gillian's, $47000 Tara's)

Fair Value, Date Exchange $60,000    $75,000 ==> ($60,000 Gillian's , $75,000 Tara's)

Cash Paid by Gillian $15,000 ==> ( $15,000 Gillian's)

Cash Received by Tara $15,000 ( $15,000 Tara's)

Required:

  1. Assuming the above listed transaction has Commercial Substance, record the exchange for both Gillian’s Gems and Tara’s Treasures in accordance with GAAP.
  2. Record the same entry, assuming the transaction lacks Commercial Substance.

Solutions

Expert Solution

ANSWER:

(a).

HAS Commercial Substance

Accounts title

Debit

Credit

Working

Gillian's

Equipment (new)

$75,000

Fair Value of old Equipment + Cash paid

Accumulated Depreciation

$40,000

Of Old Equipment

   Gain on Exchange

$4,000

Balancing amount

   Equipment (Old)

$96,000

Cost of old Equipment

   Cash

$15,000

Cash paid

Tara's

Equipment (new)

$60,000

Fair value of Equipment received

Accumulated Depreciation

$47,000

Of Old Equipment

Cash

$15,000

Cash received

   Gain on exchange

$12,000

Balancing amount

   Equipment (Old)

$110,000

Cost of old Equipment

(b).

LACKS Commercial Substance

Accounts title

Debit

Credit

Working

Gillian's

Equipment (new)

$71,000

Balancing amount

Accumulated Depreciation

$40,000

Of Old Equipment

   Equipment (Old)

$96,000

Cost of old Equipment

   Cash

$15,000

Cash paid

Tara's

Equipment (new)

$60,000

Fair value of Equipment received

Accumulated Depreciation

$47,000

Of Old Equipment

Cash

$15,000

Cash received

   Gain on exchange

$12,000

Balancing amount

   Equipment (Old)

$110,000

Cost of old Equipment

=================

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ekkarill92 answered 2 years ago
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